CBS CEO Moonves’ ouster is a too rare case

Leslie Moonves, president and CEO of CBS Corp., was ousted from his job earlier this month amid allegations of sexual misconduct.

Photo: Jae C. Hong / Associated Press 2007

CBS’ announcement of CEO Les Moonves’ departure offers a welcome example of a company willing to cut bait on a star employee based on reports of repeated sexual harassment. Even more noteworthy is the news that Moonveslikely will receive no severance pay.

CBS’ refusal to offer Moonves a cushioned exit could presage a new level of accountability post-#MeToo, one where harassers can expect neither a pass nor a golden parachute. But there are reasons to be less sanguine. Moonves’ employment contract, like that of many C-suite employees imposes steep penalties on the company in the event of a termination without cause. For CBS, the cost could reach a reported $120 million, even discounting $20 million that the company has pledged to the #MeToo movement.

It can boggle the mind to imagine that Moonves’ termination is anything but justified. The allegations against him include forced oral sex, bodily exposure, physical violence, intimidation and retaliation. If even a fraction of it is true, then there is clearly cause to terminate him under any ordinary meaning of the word.

But it is not the ordinary meaning of “cause” that applies. High-level contracts typically define cause in idiosyncratic ways — requiring that the employee willfully fail to perform, commit a felony, or engage in gross misconduct materially harming the company. Courts interpret such language to mean conduct far exceeding ordinary wrongdoing. In cases of doubt, the burden usually is on the employer to justify its decision based on proven facts.

Consequently, companies are finding themselves between a rock and a hard place when deciding what to do about accusations against high-level employees. CBS may be in a better position to deny severance than most employers. A provision in Moonves’ contract allows CBS to fire him penalty-free in the event of a “willful or material violation” of any company policy “including sexual harassment.” A 2006 study of CEO contracts found that only two among a sample of 375 agreements contained similar language. Yet CBS’ legal position is still uncertain. If Moonves challenges its decision, then CBS likely will have to prove that his conduct was intentional and severe. Moonves maintains that all of the alleged conduct is either fabricated or consensual.

It is no surprise then that companies tend to favor executives over their accusers in seeking to manage legal risk. The modest exposure associated with sexual harassment — no more than $500,000 per claim under federal damage caps — pales in comparison with the multimillions of dollars a company might owe an ousted executive.

For CBS, other concerns may have tipped the balance. The allegations against Moonves surfaced amid heated debate on CBS’ board over a proposed merger with Viacom championed by controlling shareholder Shari Redstone. Moonves’ departure is part of a settlement of litigation aimed at diluting her stake in the company. Six of Moonves’ board allies will leave with him. By showing them the door, CBS not only averts a public relations nightmare, it diffuses an escalating battle over the future of company.

If #MeToo is to have lasting impact, companies must consistently take a hard line against high-level harassment, not just when it aligns with their other interests. This means abandoning contracts that insulate executives from accountability in favor of those that preserve employers’ ability to respond swiftly and nimbly to alleged violations of law. Termination provisions that reference the company’s sexual harassment policy, as in Moonves’ contract, are a start. But companies can go further by defining cause to include conduct reasonably likely either by itself, or in tandem with further comparable behavior, to violate antidiscrimination laws.

Companies should also develop counter-incentives to high-level sexual harassment. Employers routinely tie executive compensation to financial benchmarks like stock performance. They can similarly reward executives for demonstrated success in improving equal opportunity for women. Bonuses can be linked to such measures as retention and promotion rates, gender pay equity, or reductions in Equal Employment Opportunity Commission filings.

No doubt executive recruits will push back against these changes, and some may have the muscle to insist on more self-serving terms. But a candidate’s resistance to contract language invoking compliance with antidiscrimination laws is a signal that companies ignore at their peril.

Thanks to the #MeToo Movement, the prospect of public censure is altering the balance of incentives for employers facing sexual harassment allegations against high-level employees. It is time for companies to adopt best practices for drafting executive contracts that reflect a commitment to penalizing all harassers, even those at the top of the corporate food chain.

Rachel Arnow-Richman is a professor at the University of Denver Sturm College of Law.